Weinstein Company Sale Delayed by N.Y. Attorney General Lawsuit

Eric T. Schneiderman, New York’s attorney general, speaking to reporters in August. Mr. Schneiderman filed a lawsuit against the Weinstein Company on Sunday and demanded that any victims of Harvey Weinstein be justly compensated.

Drew Angerer / Getty Images

By BROOKS BARNES and WILLIAM NEUMAN

February 11, 2018

The fire sale of the Weinstein Company hit a last-minute snag on Sunday, when Eric T. Schneiderman, New York’s attorney general, filed a lawsuit against the studio and its fraternal founders alleging that they repeatedly violated state and city laws barring gender discrimination, sexual harassment, sexual abuse and coercion.

The lawsuit, filed electronically in State Supreme Court in Manhattan, appeared timed to at least delay a sale, which had been expected to be finalized on Sunday. If financiers get spooked, Mr. Schneiderman’s move could ultimately kill the proposed deal, putting the Weinstein Company on an almost certain path to bankruptcy.

“Any sale of the Weinstein Company must ensure that victims will be compensated, employees will be protected going forward, and that neither perpetrators nor enablers will be unjustly enriched,” Mr. Schneiderman said in a news release.

The Weinstein Company has been trying to avoid bankruptcy since October, when reports by The New York Times and The New Yorker revealed decades of sexual harassment allegations against one of its founders, Harvey Weinstein. The company was nearing a deal to sell itself to an investor group for roughly $275 million, plus the assumption of $225 million in debt, according to two people briefed on the deal who spoke on condition of anonymity because the negotiations are private.

The investor group, led by Maria Contreras-Sweet, who is best known for running the Small Business Administration under President Barack Obama, has also publicly said it would create a multimillion-dollar settlement fund (in addition to insurance that is already in place) for women who have accused Mr. Weinstein of abuse.

Under the deal, the two people said, Mr. Weinstein’s younger brother, Bob Weinstein, who has run the studio’s commercially oriented Dimension Films label, would leave the studio. Bob Weinstein had frantically tried to keep control of the company following his brother’s firing in October.

The brothers, who jointly own about 42 percent of the Weinstein Company, would receive no cash from the proposed sale, according to the two people briefed on the deal. Other equity holders, including the advertising giant WPP Group, may also be wiped out.

But the final-stage talks came to a screeching halt on Sunday afternoon, according to the two people briefed on the process, as the investor group received word that Mr. Schneiderman was about to file a lawsuit based on an ongoing four-month investigation into the Weinstein Company’s internal dealings.

The lawsuit, which refers to Harvey Weinstein by his initials, says that the company’s management and board of directors “were repeatedly presented with credible evidence of HW’s sexual harassment” of company employees and interns “and his use of corporate employees and resources to facilitate sexual activity with third parties.”

In one instance, a woman who complained to human resources later discovered that it was forwarded by email to Mr. Weinstein, the legal papers say. The lawsuit added that, by guaranteeing the silence of victims and other employees through nondisclosure agreements, the company enabled Mr. Weinstein’s “unlawful conduct to continue far beyond the date when, through reasonable diligence, it should have been stopped.”

The lawsuit detailed, in the words of one employee, a “toxic environment for women. The suit says Mr. Weinstein had used female employees to aid him in his pursuit of sexual targets. It says that two employees described having to procure injectable erectile dysfunction medication for Mr. Weinstein and says that one of them received a bonus for obtaining the medication “and was at times directed by HW to administer the injections.”

The court filing mentions the possible sale of the company, saying that it could leave victims “without adequate redress” and could provide financial benefits to Mr. Weinstein or his enablers. Eric Soufer, director of communications and senior counsel to Mr. Schneiderman, said the attorney general’s office considered asking a judge for a temporary restraining order that could block the sale but opted not to and filed the civil rights lawsuit instead. He added that the office reviewed the proposed terms of the sale and that they did not include a victims compensation fund.

Harvey Weinstein speaking at an event in New York in 2012.

Carlo Allegri / Reuters

The lawsuit could result in fines against the company and the Weinstein brothers, and it calls for the defendants to pay restitution and damages to the victims.

The Weinstein Company has been in exclusive sale negotiations since Jan. 23 with an investor group led by Ms. Contreras-Sweet . Although she has no Hollywood experience, Ms. Contreras-Sweet pulled ahead of bidders like Lions Gate Entertainment by promising to keep the studio intact and retaining its employees, including senior managers like David Glasser, the Weinsteins’ longtime top lieutenant. (In the past, the Weinsteins called him their “third brother.”)

Mr. Schneiderman’s lawsuit does not name Mr. Glasser, who is the chief operating officer, but it refers to him by his title and says that the sale of the company could result in employees reporting to some of the same managers “who failed to investigate” Mr. Weinstein’s conduct or protect female employees from him.

A spokesman for Ms. Contreras-Sweet declined to comment. The Weinstein Company did not immediately respond to a request for comment.

Benjamin Brafman, a lawyer for Mr. Weinstein, said in a statement, “While Mr. Weinstein’s behavior was not without fault, there certainly was no criminality, and at the end of the inquiry it will be clear that Harvey Weinstein promoted more women to key executive positions than any other industry leader.” Mr. Weinstein has denied all allegations of “non-consensual sex.”

Amy Spitalnick, the press secretary for Mr. Schneiderman, said that his office had recently reached out to representatives for Ms. Contreras-Sweet to emphasize the importance of adequately compensating victims, protecting employees and not rewarding those who enabled or perpetuated Mr. Weinstein’s misconduct. “We were surprised to learn they were not serious about discussing any of those issues or even sharing the most basic information about how they planned to address them,” Ms. Spitalnick said.

Ms. Contreras-Sweet was stunned by Mr. Schneiderman’s public call for assurance that any sale ensure that victims are compensated, according to one person briefed on the matter, in part because that was already part of her proposal. The person added that Ms. Contreras-Sweet had not spoken to Mr. Schneiderman’s office before Sunday because Weinstein Company lawyers had blocked conversations by citing nondisclosure agreements signed as part of the sale process.

One of the investors backing Ms. Contreras-Sweet is the billionaire Ron Burkle, a longtime associate of the Weinsteins whose involvement in the sales process has raised some eyebrows in Hollywood. In 2010, he teamed with the Weinsteins in a failed effort to buy back Miramax, the independent studio they founded in 1979. (They sold it to Disney in 1993; the brothers left to found the Weinstein Company in 2005. Disney sold Miramax to an investor group in 2010.)

Rose McGowan, the actress-turned-activist, told The Hollywood Reporter in January that she found Mr. Burkle’s involvement in the bid “profoundly disturbing.” (He would become a minority owner.) Ms. McGowan reached a settlement with Harvey Weinstein after a 1997 festival encounter that she has since described, on Twitter, as rape.

Ms. Contreras-Sweet outlined her plans for the company in a letter to its board in November, when she first made her offer.

“I will be Chairwoman of a majority-female board of directors,” she wrote in the letter. “Women will be significant investors in the new company and control its voting stock.” The studio is expected to be renamed if the deal goes through.

Other bidders were only interested in pieces of the Weinstein Company, namely its 277-film library, which includes titles like “The Imitation Game” and “Django Unchained.” The Weinstein Company also has a television division that makes “Project Runway” and is working on a pair of dramas for the Paramount Network, which is owned by Viacom.

To stay afloat while it has pursued a sale — the studio employs about 150 people — the Weinstein Company at first sought loans from Fortress Investment Group, a private equity firm, and Colony Capital, the private equity firm run by Thomas J. Barrack Jr. Those efforts failed, making a sale all the more important to avoid bankruptcy.